-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AiHSeYhxDeYNa5n81zuJjfJjd1+Fe+8fuUCXpCdnzvv4ETmlJ2I++YPQyU4USBYk xjHxASpo0/ZVr9ovzr4Yvw== 0000897101-97-000628.txt : 19970529 0000897101-97-000628.hdr.sgml : 19970529 ACCESSION NUMBER: 0000897101-97-000628 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970528 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT MID CAP GROWTH FUND INC CENTRAL INDEX KEY: 0000356787 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 411414580 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-03342 FILM NUMBER: 97614949 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CTR 90 S 17TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 612-332-32 MAIL ADDRESS: STREET 1: 4600 NORWEST CTR, 90 S 17TH ST STREET 2: 4600 NORWEST CTR, 90 S 17TH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4130 FORMER COMPANY: FORMER CONFORMED NAME: SIT GROWTH FUND INC DATE OF NAME CHANGE: 19940620 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING GROWTH & INCOME FUND INC DATE OF NAME CHANGE: 19930923 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEGINNING INCOME & GROWTH FUND INC DATE OF NAME CHANGE: 19870907 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT LARGE CAP GROWTH FUND INC CENTRAL INDEX KEY: 0000356786 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 411414580 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-03343 FILM NUMBER: 97614950 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CENTER 90 S SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 612-332-32 MAIL ADDRESS: STREET 1: 4600 NORWEST CENTER 90 SOUTH ST STREET 2: 4600 NORWEST CENTER 90 SOUTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: SIT GROWTH & INCOME FUND INC DATE OF NAME CHANGE: 19940620 FORMER COMPANY: FORMER CONFORMED NAME: NEW BEGINNING GROWTH FUND INC/NEW DATE OF NAME CHANGE: 19870907 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIT MUTUAL FUNDS INC CENTRAL INDEX KEY: 0000877880 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30B-2 SEC ACT: 1940 Act SEC FILE NUMBER: 811-06373 FILM NUMBER: 97614951 BUSINESS ADDRESS: STREET 1: 4600 NORWEST CENTER STREET 2: 90 S SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 612-332-3223 MAIL ADDRESS: STREET 2: 4600 NORWEST CTR, 90 SOUTH SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402-4130 FORMER COMPANY: FORMER CONFORMED NAME: SIT NEW BEGINNING MUTUAL FUNDS INC DATE OF NAME CHANGE: 19920929 N-30B-2 1 QUARTERLY REPORT STOCK FUNDS QUARTERLY REPORT March 31, 1997 A FAMILY OF 100% NO-LOAD FUNDS LARGE CAP GROWTH FUND MID CAP GROWTH FUND SMALL CAP GROWTH FUND BALANCED FUND INTERNATIONAL GROWTH FUND DEVELOPING MARKETS GROWTH FUND [Sit Logo] SIT MUTUAL FUNDS SIT MUTUAL FUNDS STOCK FUNDS QUARTERLY REPORT TABLE OF CONTENTS PAGE ---- Chairman's Letter................................................ 1 Performance Review............................................... 2 Fund Reviews Large Cap Growth Fund....................................... 4 Mid Cap Growth Fund......................................... 6 Small Cap Growth Fund....................................... 8 Balanced Fund............................................... 10 International Growth Fund................................... 12 Developing Markets Growth Fund.............................. 14 A Look at the Sit Mutual Funds................................... 16 This document must be preceded or accompanied by a Prospectus. SIT MUTUAL FUNDS Chairman's Letter - March 31, 1997 [PHOTO] Dear Fellow Shareholders: Global equity markets provided mixed results during the first calendar quarter ended March 31, 1997. The strength of the U.S. economy induced the Federal Reserve to raise short-term interest rates in March, leaving investors to debate over the course of future interest rate trends. Economic Overview The strength of the U.S. economy during the first quarter of 1997 ultimately resulted in a 25 basis point increase in the federal funds rate. Having grown at a +3.8% annualized real GDP growth rate during the fourth quarter, the economy has thus far in 1997 exhibited few signs of slowing. Personal income and expenditures posted strong gains during February, on steady gains in employment and gradually rising wages. Real personal consumption expenditures, which account for nearly two-thirds of GDP, have advanced at a +4.8% annual rate. Given this momentum, our expectations for first quarter growth have risen to +3.5% or higher, although we are forecasting a gradual slowing thereafter which should produce calendar 1997 real GDP growth of +3.2%. We also believe that inventory expansion could augment first quarter growth, but that this will likely be offset by contracting net exports due to the stronger U.S. dollar. Even though the Fed has adopted a more restrictive monetary stance, the currently low and relatively stable inflation level provides one of the underpinnings for financial assets. Through March, consumer and producer inflation has decelerated from year-end levels, with +2.8% and +1.6% year-over-year increases in the CPI and PPI, respectively. Commodity inflation also appears to be in a downward trend. While current inflation looks to be contained, the strength of the economy, as evidenced by consumer spending and employment trends, is being closely monitored by the Fed. We believe the Fed will raise the fed funds rate by an additional 50 basis points in the ensuing months should economic strength continue, but from the 7 to 7 1/2% level, the stage could be set for long-term rates to decline during the second half of 1997 as the markets assess the lagged impact of higher short-term rates. As expected, Congress did not meet the April 15th deadline for a budget resolution and will likely complete negotiations early this summer. Controversial issues to be debated include changing the calculations of the CPI to reduce entitlement spending, tax cuts and a plan to balance the budget by 2002. Thus far in fiscal 1997, the deficit is $16 billion lower than last year's level, and it remains one of the lowest in the industrialized world. Equity Investment Strategy We expect that domestic stocks could remain in a consolidation phase near current levels until the Fed tightens further; however, the effect of higher short-term interest rates has historically worked to growth stocks' advantage as overall market earnings growth slows. At the end of the quarter, the market, in general, and growth stocks, in particular, have become increasingly attractive on the basis of price momentum and valuation. This is especially true for quality, high-growth companies whose price/earnings ratios have approached their long-term growth rates. The Sit domestic growth funds continue to be positioned with substantially higher earnings growth than the S&P 500 Index, yet their valuations are not excessive when compared to the market's price/earnings ratio. We look to make selective, high-growth additions to the portfolio on an opportunistic basis where individual company fundamentals remain strong. We also note that strength in the U.S. dollar has historically correlated positively with small cap stock performance given their generally limited exposure to foreign markets. We believe some consolidation in international markets could result from expectations of additional increases in U.S. short-term interest rates. Given the potential currency risk in those countries whose currencies are closely aligned to the U.S. dollar and those in Asia whose financial sectors have come under stress, we have modestly reduced our weight in Asia. We remain positive on Asia's long-term prospects, however, and look for significant economic growth and investment to drive sustainable earnings growth in the +10 to +12% range. We have increased our exposure to European multinationals with strong regional and global franchises as well as to Latin America, which has been the beneficiary of strong capital inflows and improving economic fundamentals. We sincerely appreciate your interest and investment in the Sit Mutual Funds, and we look forward to assisting you in achieving your long-term investment goals. With best wishes, /s/ Eugene C. Sit Eugene C. Sit, CFA Chairman and Chief Investment Officer SIT MUTUAL FUNDS March 31, 1997 Performance Review - Stock Funds STOCK FUNDS REVIEW Domestic stocks began 1997 in strong fashion but retreated in March on news of higher short-term interest rates to finish the first quarter with modest gains. The market grew skittish on additional signs of economic acceleration and in anticipation of potential future Federal Reserve actions, which once again generally led investors to the relative stability of larger company stocks. The DJIA provided investors with a +2.1% total return, while the S&P 500 Index finished the quarter +2.8%. Similar to last quarter, performance was again narrowly concentrated among the largest companies in the representative indices. Medium and smaller-sized companies fared comparatively worse, with the S&P Midcap 400 Index declining -1.5% and the Russell 2000 Index falling -5.2%. Most of the first quarter's economic indicators were suggestive of strong growth, which spurred a rise in interest rates and a contraction in equity valuations. Hardest hit were the high growth areas of technology, health care and business services. Holdings in the consumer staples and financial services area performed reasonably well. Despite the economic strength of the past two quarters, we continue to look for moderate growth in the second half of 1997, which should aid prospects for domestic, above-average growth issues. International equity results varied widely but were down slightly during the quarter as seen in the -1.6% performance in the MSCI EAFE Index in U.S. dollar terms. The Asia Pacific markets reacted negatively to U.S. dollar strength, higher U.S. short-term interest rates and financial sector weakness. Taiwan was the exception, however, rising +15.2% on strength in the electronics sector. The MSCI Pacific Index fell -9.9%, but this return was heavily influenced by Japan's -11.8% contraction. European markets contributed positively as seen in the MSCI Europe's +4.9% return, while Latin American markets surged +21.0% according to the MSCI Emerging Markets Latin America Index on positive capital inflows and generally improving economic fundamentals.
TOTAL RETURN - CALENDAR YEAR 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 SIT LARGE CAP GROWTH 23.48% 21.83% 5.32% 5.33% 32.02% -2.37% 32.72% 4.94% 3.15% 2.83% SIT MID CAP GROWTH 43.65 10.33 5.50 9.77 35.15 -2.04 65.50 -2.14 8.55 -0.47 SIT SMALL CAP GROWTH ---- ---- ---- ---- ---- ---- ---- ---- ---- 11.57(1) SIT BALANCED ---- ---- ---- ---- ---- ---- ---- ---- ---- -0.33 SIT INTERNATIONAL GROWTH ---- ---- ---- ---- ---- ---- 4.10(1) 2.69 48.37 -2.99 SIT DEVELOPING MARKETS GROWTH ---- ---- ---- ---- ---- ---- ---- ---- ---- -2.02(1) S&P 500 INDEX 31.60 18.64 5.28 16.55 31.61 -3.05 30.46 7.64 10.07 1.32 S&P MIDCAP 400 INDEX 35.59 16.21 -2.04 20.87 35.55 -5.12 50.11 11.92 13.95 -3.60 RUSSELL 2000 INDEX (2) -- -- -- -- -- -- -- -- -- 4.61 EAFE INDEX (3) -- -- -- -- -- -- 0.26 -12.17 32.56 7.78 MSCI EMERGING MARKETS FREE INDEX (4) -- -- -- -- -- -- -- -- -- 2.80
(continued wide table from above) YTD 1995 1996 1997 31.66% 23.05% -0.83% 33.64 21.87 -10.09 52.16 14.97 -14.38 25.43 15.80 -0.75 9.36 10.31 -0.43 -4.29 17.27 6.22 37.58 22.96 2.67 30.94 19.19 -1.46 28.45 16.49 -5.17 11.21 6.05 -1.57 -6.94 3.92 8.04
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED MARCH 31, 1997 TOTAL RETURN NASDAQ QUARTER SIX MONTHS SINCE SYMBOL INCEPTION ENDED 3/31/97 ENDED 3/31/97 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION SIT LARGE CAP GROWTH SNIGX 09/02/82 -0.83% 3.12% 16.94% 19.91% 13.30% 11.17% 14.82% SIT MID CAP GROWTH NBNGX 09/02/82 -10.09 -8.46 2.68 15.32 10.56 11.73 17.92 SIT SMALL CAP GROWTH SSMGX 07/01/94 -14.38 -16.60 -4.96 ---- ---- ---- 20.53 SIT BALANCED SIBAX 12/31/93 -0.75 3.50 12.56 14.07 ---- ---- 11.80 SIT INTERNATIONAL GROWTH SNGRX 11/01/91 -0.43 4.07 6.17 7.60 12.08 ---- 12.01 SIT DEVELOPING MARKETS GROWTH SDMGX 07/01/94 6.22 5.45 14.16 ---- ---- ---- 5.81 S&P 500 INDEX (5) 2.67 11.23 19.81 22.30 16.42 13.38 17.31 S&P MIDCAP 400 INDEX (5) -1.46 4.51 10.65 15.51 13.70 13.59 17.69 RUSSELL 2000 INDEX (2) -5.17 -0.24 5.11 -- -- -- 15.44 EAFE INDEX (3) -1.57 0.00 1.45 6.53 10.57 -- 7.24 MCSI EMERGING MARKETS FREE INDEX (4) 8.04 7.07 6.15 -- -- -- 2.62
(1) Period from Fund inception through calendar year-end. (2) Figures assume an inception date of 7/1/94. (3) Figures assume an inception date of 10/31/91. (4) Figures assume an inception date of 6/30/94. (5) Figures assume an inception date of 9/2/82. PLEASE REMEMBER THAT PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS AND IS ONLY ONE OF THE FACTORS TO CONSIDER IN CHOOSING A FUND. AS WITH ALL INVESTMENTS, THE SHARE PRICE AND RETURN MAY VARY, AND YOU MAY HAVE A GAIN OR LOSS AT THE TIME OF SALE. SIT LARGE CAP GROWTH FUND REVIEW March 31, 1997 [PHOTO] PETER L. MITCHELSON, CFA SENIOR PORTFOLIO MANAGER RONALD D. SIT, CFA PORTFOLIO MANAGER Performance of the Sit Large Cap Growth Fund was slightly negative in the first quarter of calendar 1997, lagging the return of the Lipper Growth Fund Index. Over the past 12 months, the Fund's total return of +16.94% compared favorably with the +12.03% return of the Lipper Index. Domestic stock market returns have been more modest thus far in 1997 after two robust years. From record highs reached in early March, major stock market indexes retreated roughly -7% by month end amidst fears of multiple Federal Reserve policy tightenings in response to recent economic strength that has pushed the economy into a zone that could result in future inflationary pressures. First quarter real GDP growth could be +3.5% or higher, spurred by a healthy consumer sector that is well employed. Coming on the heels of the +3.8% real GDP growth rate in the fourth quarter of 1996, the first quarter strength has concerned the Federal Reserve that tightness in employment has the potential to cause wage pressures in the future even though most other pricing indicators are relatively dormant at the present time. While the Fed's actions are creating uncertainty in the near term, we believe the intent of keeping inflation under control is very positive for financial assets in the longer term. The Fund appears well positioned to benefit ultimately since the average 1997 earnings gain projected for the companies held in the Fund is +25.3%, which is considerably higher than the broad market's expected increase. As of March 31, the Fund was 92% invested in equities, a reduction of five percentage points compared to the end of 1996. Industry weighting changes were minor during the quarter. The four most heavily-weighted sectors represent rapidly growing areas of the economy, namely, technology, health care, financial and consumer non-durables. During the quarter, four new companies, Chase Manhattan, Allstate, Eli Lilly and Warner Lambert were purchased, while portfolio positions in Promus Hotel and Potash were eliminated. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Sit Large Cap Growth Fund is to achieve long-term capital appreciation and, secondarily, current income. The Fund pursues this objective by investing primarily in common stocks of medium to large size growth companies. As of June 30, 1996, the Fund was invested exclusively in such securities. PORTFOLIO SUMMARY Net Asset Value 3/31/97: $33.40 Per Share 12/31/96: $33.68 Per Share Total Net Assets: $59.36 Million PORTFOLIO STRUCTURE (% of total net assets) [BAR GRAPH] Technology 20.8 Health Care 17.0 Financial 13.8 Consumer Non-Durables 10.1 Capital Goods 6.4 Business Equip. & Services 6.1 Energy 5.4 Retail 4.9 Consumer Services 3.3 Utilities 1.7 Raw Materials 1.5 Consumer Durables 0.7 Multi-Industry 0.5 Other Assets & Liabilities 7.8
AVERAGE ANNUAL TOTAL RETURNS* Cumulative Total Returns* ----------------------------- ------------------------- Large Cap Russell S&P Large Cap Russell S&P Growth 1000 500 Growth 1000 500 Fund Growth Index Index Fund Growth Index Index ------------------------------------ ------------------------------------- 3 Months -0.83% 0.54% 2.67% -0.83% 0.54% 2.67% (unannualized) 1 Year 16.94 17.48 19.81 16.94 17.48 19.81 5 Years 13.30 14.66 16.42 86.73 98.14 113.87 10 Years 11.17 13.03 13.38 188.32 240.38 250.95 Inception 14.82 16.45 17.31 650.73 822.29 926.85 (9/2/82)
* As of 3/31/97 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. SHARE PRICE AND RETURN WILL VARY SO THAT A GAIN OR LOSS MAY BE REALIZED WHEN SHARES ARE SOLD. TOTAL RETURN SHOULD NOT BE TAKEN AS A REPRESENTATION OF FUTURE PERFORMANCE. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE S&P 500 INDEX NOR THE RUSSELL 1000 GROWTH INDEX. ON 6/6/93, THE FUND'S INVESTMENT OBJECTIVE CHANGED TO ALLOW FOR A PORTFOLIO OF 100% STOCKS. PRIOR TO THAT TIME, THE PORTFOLIO WAS REQUIRED TO CONTAIN NO MORE THAN 80% STOCKS. GROWTH OF $10,000 [LINE GRAPH] The sum of $10,000 invested at inception (9/2/82) and held until 3/31/97 would have grown to $75,073 in the Fund, or $102,687 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. 10 LARGEST HOLDINGS * General Electric Corp. * Microsoft Corp. * Intel Corp. * Philip Morris Cos., Inc. * Pfizer, Inc. * Cisco Systems, Inc. * Coca Cola Co. * Johnson & Johnson * Gillette Co. (The ) * Norwest Corporation Total number of holdings: 66 SIT MID CAP GROWTH FUND REVIEW March 31, 1997 [PHOTO] EUGENE C. SIT, CFA SENIOR PORTFOLIO MANAGER ERIK S. ANDERSON, CFA PORTFOLIO MANAGER Medium cap growth stocks, particularly those with above-average growth prospects, experienced difficult market performance during the first quarter as continued signs of economic strength and expectations for higher interest rates took their toll. Looking ahead, we believe the Sit Mid Cap Growth Fund remains an attractive investment vehicle given the growth attributes of its portfolio in light of its current valuation. The dynamic companies in the Fund's portfolio combine to provide earnings growth potential exceeding +25% in both 1997 and 1998. Over the long term, we expect the Fund to provide earnings growth of approximately +23%, nearly three times the overall market as measured by the S&P 500 Index. We remain committed to our growth-oriented investment approach, which leads us to emphasize investment opportunities in technology, health care, and financial services because of the favorable prospects for these sectors. The Fund's valuation at quarter end was 22.2 times and 17.8 times estimated 1997 and 1998 earnings, respectively, on a weighted average basis, equating to an average 23% discount to its estimated near-term growth rates and a 13% discount to its estimated long-term growth rate. Moreover, with a weighted average market cap of $2.7 billion, and with 75% of its portfolio invested in companies having greater than 16% estimated long-term earnings growth, the Fund's concentration in true midcap, high-growth investments is higher than most comparable growth-oriented midcap indices. Performance during the quarter was impacted negatively by payment processors, health care information systems companies, and software/networking stocks; however, we are seeing improved performance in several other key areas, specifically technology and health care. New additions during the quarter included Pairgain Technology (telecommunications), Republic New York (banking) and Vertex Pharmaceuticals (biotechnology). With 5% in cash reserves, the Fund remained essentially fully invested at quarter end. Given the fundamentals of the companies in the Fund's portfolio and the valuation, in general, of medium cap growth stocks, we remain optimistic on the Fund's prospects for 1997. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Sit Mid Cap Growth Fund is to maximize long-term capital appreciation. The Fund pursues this objective by investing primarily in the common stocks of small and medium-size emerging growth companies before they become well recognized. The Fund may invest in larger companies which offer improved growth possibilities because of rejuvenated management, changes in product or some other development that might stimulate earnings growth. PORTFOLIO SUMMARY Net Asset Value 3/31/97: $12.83 Per Share 12/31/96: $14.27 Per Share Total Net Assets: $324.00 Million PORTFOLIO STRUCTURE (% of total net assets) [BAR GRAPH] Technology 23.0 Financial 20.2 Health Care 16.1 Business Equip. & Services 11.2 Energy 10.3 Consumer Services 7.6 Retail 2.7 Capital Goods 2.2 Consumer Durables 1.7 Other Assets & Liabilities 5.0
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ----------------------------- ------------------------- Mid Cap Russell S&P Mid Cap Russell S&P Growth Mid Cap Midcap Growth Mid Cap Midcap Fund Growth Index 400 Index Fund Growth Index 400 Index --------------------------------------- --------------------------------------- 3 Months -10.09% -3.64% -1.46% -10.09% -3.64% -1.46% (unannualized) 1 Year 2.68 6.34 10.65 2.68 6.34 10.65 5 Years 10.56 13.09 13.70 65.20 84.98 90.05 10 Years 11.73 11.90 13.59 203.22 207.76 257.46 Inception 17.92 n/a 17.69 1,007.03 n/a 975.47 (9/2/82)
* As of 3/31/97 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. SHARE PRICE AND RETURN WILL VARY SO THAT A GAIN OR LOSS MAY BE REALIZED WHEN SHARES ARE SOLD. TOTAL RETURN SHOULD NOT BE TAKEN AS A REPRESENTATION OF FUTURE PERFORMANCE. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL MID CAP GROWTH INDEX NOR THE S&P MIDCAP 400 INDEX. GROWTH OF $10,000 [LINE GRAPH] The sum of $10,000 invested at inception (9/2/82) and held until 3/31/97 would have grown to $110,703 in the Fund, or $107,547 in the S&P Midcap 400 Index assuming reinvestment of all dividends and capital gains. 10 LARGEST HOLDINGS * Mercury General Corp. * Parametric Technology, Inc. * TCF Financial Corp. * MGIC Investment Corp. * T Rowe Price & Associates * Xilinx, Inc. * Analog Devices, Inc. * Oxford Health Plans, Inc. * HBO & Co. * Promus Hotel Corp. Total number of holdings: 56 SIT SMALL CAP GROWTH FUND REVIEW March 31, 1997 [PHOTO] EUGENE C. SIT, CFA SENIOR PORTFOLIO MANAGER The first quarter of 1997 was a difficult one in market performance for small capitalization growth stocks and for the Sit Small Cap Growth Fund, in particular. The Fund was down -14.4% versus -10.1% for the Lipper Small Company Growth Index for this period. This underperformance occurred while major market indices reached new highs before their recent corrections. More importantly, many growth companies in our portfolio continue to exhibit very strong revenue and earnings growth. We currently estimate that the Fund's holdings should show earnings growth exceeding +30% on a weighted average basis in 1997 and 1998 and in excess of +25% on a longer term basis. These projected growth rates are more than three times the expected earnings growth for the stocks comprising the S&P 500 Index. We believe that the portfolio's valuation at approximately 21 times estimated earnings for 1997 offers attractive relative value to the S&P 500's price/earnings ratio of approximately 18 times given the portfolio's superior growth rates. Small company growth stocks have lagged the major market indices since mid 1996. This reflects continued strong earnings performance of larger company stocks despite the fact that we are in the late stages of the current economic expansion. Additionally, expectations of further increases in interest rates and substantial inflows into index-related securities have led investors to stocks of larger, more stable companies. As mentioned, the fundamentals of our holdings in the technology, business and consumer services, and health care sectors, in general, remain quite favorable; we continue to adhere to our policy of seeking out the most attractive growth companies in these sectors. The Fund's holdings are heavily concentrated in the previously mentioned high-growth sectors as well as financial and energy services companies. In terms of portfolio changes during the quarter, the most significant adjustments included increases in the financial and consumer services and technology sectors where there are combinations of attractive valuations and earnings momentum. Health care holdings were pared slightly, and cash was reduced toward a more fully invested level. We believe the strong fundamentals and attractive valuations of the companies in the Fund's portfolio make the Sit Small Cap Growth Fund an attractive long-term investment today. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Sit Small Cap Growth Fund is to maximize long-term capital appreciation. The Fund pursues this objective by investing primarily in the common stocks of small companies that have a capitalization of under $500 million at the time of purchase. In addition, the Fund may purchase securities convertible into common stocks, preferred stocks and warrants. The Fund may invest in securities not listed on a national securities exchange but generally such securities will have an established over-the-counter market. PORTFOLIO SUMMARY Net Asset Value 3/31/97: $15.78 Per Share 12/31/96: $18.43 Per Share Total Net Assets: $46.27 Million PORTFOLIO STRUCTURE (% of total net assets) [BAR GRAPH] Technology 28.1 Financial 16.9 Health Care 16.6 Consumer Services 11.8 Energy 9.5 Business Equip. & Services 4.2 Capital Goods 3.9 Consumer Non-Durables 1.9 Retail 0.5 Other Assets & Liabilities 6.6
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ----------------------------- ------------------------- Small Cap Russell Russell Small Cap Russell Russell Growth 2000 2000 Growth 2000 2000 Fund Index Growth Index Fund Index Growth Index --------------------------------------- ---------------------------------------- 3 Months -14.38% -5.17% -10.49% -14.38% -5.17% -10.49% (unannualized) 1 Year -4.96 5.11 -5.82 -4.96 5.11 -5.82 Inception 20.53 15.44 13.47 67.12 48.44 41.62 (7/1/94)
* As of 3/31/97 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. SHARE PRICE AND RETURN WILL VARY SO THAT A GAIN OR LOSS MAY BE REALIZED WHEN SHARES ARE SOLD. TOTAL RETURN SHOULD NOT BE TAKEN AS A REPRESENTATION OF FUTURE PERFORMANCE. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE RUSSELL 2000 INDEX NOR THE RUSSELL 2000 GROWTH INDEX. GROWTH OF $10,000 [LINE GRAPH] The sum of $10,000 invested at inception (7/1/94) and held until 3/31/97 would have grown to $16,712 in the Fund or $14,844 in the Russell 2000 Index assuming reinvestment of all dividends and capital gains. 10 LARGEST HOLDINGS * Anadigics, Inc. * Scopus Technology * Technomatix Technologies, Ltd. * Community First Bankshares, Inc. * Provident Bankshares Corp. * BDM International, Inc. * Central European Media Enterprises, Ltd. * Cardio Thoracic Systems, Inc. * Aspen Technology, Inc. * Uniphase Corp. Total number of holdings: 57 SIT BALANCED FUND REVIEW March 31, 1997 [PHOTO] PETER L. MITCHELSON, CFA SENIOR PORTFOLIO MANAGER BRYCE A. DOTY, CFA PORTFOLIO MANAGER Performance of the Sit Balanced Fund was slightly negative in the first quarter of calendar 1997, but over the past 12 months increased +12.6%. On a three year basis, the Fund was ranked in the 29th percentile out of 177 balanced funds tracked by Lipper Analytical Services. As of March 31, the asset allocation of the Fund in equities was 56%, down slightly from 59% at the end of December. Fixed income securities stayed relatively constant at 35% of assets while cash reserve instruments increased to 9% of assets. Recent economic strength has pushed the economy into a zone that could result in inflationary pressures, prompting the Federal Reserve to raise short-term interest rates in the near term. First quarter real GDP growth could be +3.5% or higher, spurred by a healthy consumer sector that is well employed. Largely as a result of the Fed's intentions to tighten monetary policy, common stock performance has been more modest thus far in 1997 after two robust years. Our longer term forecast continues to be for moderate economic growth and contained inflation, two conditions generally favorable for financial asset investing, in general, and for growth stocks, in particular. Within the equity portion of the portfolio, industry weighting changes were minor during the quarter. Reflecting the Fund's growth-oriented equity investment style, the four most heavily weighted sectors are technology, health care, financial and consumer non-durables. Within the fixed income portion of the portfolio, we sold a portion of the Fund's U.S. Treasury securities in favor of corporates. Included in the corporates is one of the new securities linked to the rate of inflation. Specifically, the size of the principal increases at the same rate as the Consumer Price Index, protecting the bond's return from rising inflation. Over the near term, the Federal Reserve may raise interest rates further to slow the economy, but stable to declining interest rates are likely to result thereafter. Accordingly, we are maintaining the duration of the fixed income holdings slightly longer than related fixed income market indices. High quality securities offering attractive total returns continue to be emphasized. INVESTMENT OBJECTIVE AND STRATEGY The Sit Balanced Fund's dual objectives are to seek long-term growth of capital consistent with the preservation of principal and to provide regular income. It pursues its objectives by investing in a diversified portfolio of stocks, bonds and short-term instruments. The Fund may emphasize either equity securities, fixed-income securities, or short-term instruments or hold equal amounts of each, dependent upon the Adviser's analysis of market, financial and economic conditions. The Fund's permissible investment allocation is: 40-60% in equity securities, 40-60% in fixed-income securities, and up to 20% in short-term fixed-income instruments. At all times at least 25% of the assets will be invested in fixed-income senior securities. PORTFOLIO SUMMARY Net Asset Value 3/31/97: $13.23 Per Share 12/31/96: $13.33 Per Share Total Net Assets: $4.45 Million Quarterly Dividend: $0.09 Per Share PORTFOLIO STRUCTURE (% of total net assets) [PIE GRAPH] Stocks 56.0% Bonds 44.0% (Bonds & Cash)
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ----------------------------- ------------------------- Lehman S&P Lehman S&P Balanced Aggregate 500 Balanced Aggregate 500 Fund Bond Index Index Fund Bond Index Index -------------------------------------- -------------------------------------- 3 Months -0.75% -0.56% 2.67% -0.75% -0.56% 2.67% (unannualized) 1 Year 12.56 4.91 19.81 12.56 4.91 19.81 3 Year 14.07 6.86 22.30 48.44 22.03 82.91 Inception 11.80 5.37 19.00 43.69 18.53 75.98 (12/31/93)
* As of 3/31/97 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. SHARE PRICE AND RETURN WILL VARY SO THAT A GAIN OR LOSS MAY BE REALIZED WHEN SHARES ARE SOLD. TOTAL RETURN SHOULD NOT BE TAKEN AS A REPRESENTATION OF FUTURE PERFORMANCE. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE LEHMAN AGGREGATE BOND INDEX NOR THE S&P 500 INDEX. GROWTH OF $10,000 [LINE GRAPH] The sum of $10,000 invested at inception (12/31/93) and held until 3/31/97 would have grown to $14,367 in the Fund, $11,853 in the Lehman Aggregate Bond Index or $17,598 in the S&P 500 Index assuming reinvestment of all dividends and capital gains. TOP HOLDINGS STOCKS * General Electric Co. * Microsoft Corp. * Philip Morris Cos. Inc. * Intel Corp. * Pfizer, Inc. BONDS * Franchise Finance Corp., 7.875%, 11/30/05 * Ford Motor Credit Corp., 9.14%, 12/30/14 * EquiVantage 1996-3 A-3, 7.70%, 9/25/27 * GNMA 9.50%, 11/15/04 * ContiMortgage Home Equity Loan Trust 1996-1 A7, 7.00%, 9/25/27 Total number of holdings: 101 SIT INTERNATIONAL GROWTH FUND REVIEW March 31, 1997 [PHOTO] EUGENE C. SIT, CFA SENIOR PORTFOLIO MANAGER ANDREW B. KIM, CFA SENIOR PORTFOLIO MANAGER The Sit International Growth Fund declined -0.4% during the quarter, compared to the MSCI EAFE Index decline of -1.6%. The European markets continued their upward trend, and non-index markets in Latin America and Taiwan also provided positive results. However, these positive returns were offset by the declines in virtually all of the Asian markets. Japan declined the most, down - -11.8% in U.S. dollar terms. We have continued to reduce the Fund's exposure to Japan, and we remain significantly underweighted relative to the Index at about 63% of the benchmark's weight. Since the recent consumption tax increase will slow consumption growth in the near term, we continue to focus on those exporters benefiting from the low interest rate and weak yen environment. We expect reasonable upside for the non-Japan Asian markets for the remainder of 1997, based on an export recovery, a pick-up in earnings growth, and modest valuations. Most markets are trading below their five-year historic highs. We continue to maintain our positive bias towards Europe. The business cycle, inflation and interest rate outlooks are all favorable. The sharp appreciation of the deutschmark relative to the dollar has resulted in positive earnings revisions for many of our multi-national holdings, which have significant dollar based earnings. The Latin American markets have shown relative stability in relation to the increasing volatility of the U.S. market. We plan to slightly increase our allocation to the region as lower current account deficits, more competitive currencies, and greater fiscal discipline should continue to support the markets of the region. Our portfolio continues to concentrate on those companies with visible earnings streams, benefiting from rapid globalization and corporate restructuring. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Sit International Growth Fund is to achieve long-term growth of capital by investing in equity securities of issuers domiciled outside the United States. The Fund's investment objective reflects the belief that long-term investment planning should include the investment opportunities that exist outside the U.S. The Fund selects its investments based on the characteristics of the particular markets and economies of the countries in which it invests. Emphasis is placed on identifying securities of companies believed to be undervalued in the marketplace in relation to factors such as the company's revenues, earnings, assets and long-term competitive position which over time will enhance the equity value of the company. PORTFOLIO SUMMARY Net Asset Value 3/31/97: $16.38 Per Share 12/31/96: $16.45 Per Share Total Net Assets: $84.55 Million PORTFOLIO STRUCTURE - BY REGION ( % of total net assets) [BAR GRAPH] SIT INT'L Morgan Stanley GROWTH FUND EAFE Index Europe Other 25.3 23.8 France, Germany & UK 24.8 36.2 Pacific Basin 23.1 10.9 Japan 18.4 29.1 Latin America 4.8 0.0 Cash Equivalents 3.6 0.0
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ----------------------------- ------------------------- International Morgan Stanley Lipper International Morgan Stanley Lipper Growth Capital Int'l Int'l Growth Capital Int'l Int'l Fund EAFE Index Index Fund EAFE Index Index ---------------------------------------- ------------------------------------------ 3 Months -0.43% -1.57% 2.50% -0.43% -1.57% 2.50% (unannualized) 1 Year 6.17 1.45 12.34 6.17 1.45 12.34 3 Years 7.60 6.53 8.99 24.56 20.89 29.48 5 Years 12.08 10.57 11.41 76.87 65.28 71.63 Inception 12.01 7.24 10.90 84.83 46.04 75.22 (11/1/91)
* As of 3/31/97 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. SHARE PRICE AND RETURN WILL VARY SO THAT A GAIN OR LOSS MAY BE REALIZED WHEN SHARES ARE SOLD. TOTAL RETURN SHOULD NOT BE TAKEN AS A REPRESENTATION OF FUTURE PERFORMANCE. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY CAPITAL INTERNATIONAL EAFE (EUROPE, AUSTRALIA, FAR EAST) INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. GROWTH OF $10,000 [LINE GRAPH] The sum of $10,000 invested at inception (11/1/91) and held until 3/31/97 would have grown to $18,483 in the Fund or $14,604 in the Morgan Stanley EAFE Index assuming reinvestment of all dividends and capital gains. 10 LARGEST HOLDINGS * Hutchison Whampoa * Canon, Inc., A.D.R. * Matsushita Kotobuki * Aegon N.V., A.D.R. * Nutricia * Zurich Insurance * Veba A.G. * Banyu Pharmaceuticals * City Developments * L.M. Ericsson Telephone Co., A.D.R. Total number of holdings: 77 SIT DEVELOPING MARKETS GROWTH FUND REVIEW March 31, 1997 [PHOTO] EUGENE C. SIT, CFA SENIOR PORTFOLIO MANAGER ANDREW B. KIM, CFA SENIOR PORTFOLIO MANAGER The Sit Developing Markets Growth Fund was up +6.2% for the quarter, compared to the MSCI Emerging Markets Index return of +8.0%. South Africa, which comprises 11.5% of the Index, benefited from a stronger currency and rallied +11.4% during the quarter. The Fund historically has had minimal exposure to South Africa, as we focus on economies with superior economic and corporate earnings growth potential. We have steadily increased the Fund's allocation in Latin America from 26% at the beginning of the quarter to 35% at quarter end. We remain optimistic on Brazil, where the state-owned companies are benefiting from a more favorable tariff environment as the privatization program progresses. During the quarter, we added two supermarket chains in Brazil and Argentina (CIA Brasil Distribuicao Pfd. and Disco S.A., respectively); a pharmaceutical company in Chile (Laboratorio Chile); as well as a recently privatized electric utility in Brazil (Light ON Brasil). In Mexico, new portfolio additions include a diversified conglomerate and a household goods retailer (Grupo Carso, S.A. and Grupo Elektra S.A., respectively). The Fund's Asian weighting has declined to 45% from 48% at the beginning of the quarter due to interest rate concerns, slower export growth, and an oversupply of commercial real estate. However, the severe export downturn, which impaired growth in 1996, is bottoming. We expect regional earnings growth to accelerate to 14% in 1997 from only 4% in 1996. Overheating pressures in most countries are abating and easier monetary policies should result in attractive investment prospects. We continue to overweight Israel and Portugal. Many multinational technology companies are located in Israel, and Portugal is benefiting from increased investment spending as they strive to join EMU. INVESTMENT OBJECTIVE AND STRATEGY The objective of the Sit Developing Markets Growth Fund is to maximize long-term capital appreciation. The Fund pursues this objective by investing in equity securities of companies located or otherwise operating in a developing market. Developing markets tend to be less economically developed regions of the world. General characteristics also include a high demand for capital investment, a high dependence on export markets for their major industries, a need to develop basic economic infrastructures, rapid economic growth and lower degrees of political stability. Investors should carefully consider the risks associated with developing markets such as currency flucuations, high volatility, illiquidity and the possibility of political instability. PORTFOLIO SUMMARY Net Asset Value 3/31/97: $11.61 Per Share 12/31/96: $10.93 Per Share Total Net Assets: $13.36 Million PORTFOLIO STRUCTURE (% of total net assets) [BAR GRAPH] SIT DEVELOPING MARKETS MSCI Emerging GROWTH FUND Markets Free Index Pacific Basin 44.5 47.1 Latin America 34.7 31.7 Africa/Middle East 6.2 13.7 Europe 5.4 7.5 Other Assets & Liabilities 9.2 N/A
AVERAGE ANNUAL TOTAL RETURNS* CUMULATIVE TOTAL RETURNS* ----------------------------- ------------------------- Developing Morgan Stanley Lipper Developing Morgan Stanley Lipper Markets International Emerging Markets International Emerging Growth Emerging Markets Markets Growth Emerging Markets Markets Fund Free Index Index Fund Free Index Index ------------------------------------------- ------------------------------------------- 3 Months 6.22% 8.04% 8.58% 6.22% 8.04% 8.58% (unannualized) 1 Year 14.16 6.15 12.01 14.16 6.15 12.01 Inception 5.81 2.62 5.55 16.82 7.39 16.02 (7/1/94)
* As of 3/31/97 PERFORMANCE IS HISTORICAL AND ASSUMES REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS. SHARE PRICE AND RETURN WILL VARY SO THAT A GAIN OR LOSS MAY BE REALIZED WHEN SHARES ARE SOLD. TOTAL RETURN SHOULD NOT BE TAKEN AS A REPRESENTATION OF FUTURE PERFORMANCE. MANAGEMENT FEES AND ADMINISTRATIVE EXPENSES ARE INCLUDED IN THE FUND'S PERFORMANCE; HOWEVER, FEES AND EXPENSES ARE NOT INCORPORATED IN THE MORGAN STANLEY INTERNATIONAL EMERGING MARKETS FREE INDEX. THE LIPPER AVERAGES AND INDICES ARE OBTAINED FROM LIPPER ANALYTICAL SERVICES, INC., A LARGE INDEPENDENT EVALUATOR OF MUTUAL FUNDS. GROWTH OF $10,000 [LINE GRAPH] The sum of $10,000 invested at inception (7/1/94) and held until 3/31/97 would have grown to $11,682 in the Fund or $10,739 in the Morgan Stanley Capital Int'l Emerging Markets Free Index assuming reinvestment of all dividends and capital gains. 10 LARGEST HOLDINGS * Datacraft Asia Ltd. * Telebras, A.D.R. * Panamerican Beverage, Inc. * Yageo, G.D.R. * Banco Latinoamericano * President Enterprises, G.D.S. * Nice Systems, A.D.R. * Korea Electric Power * First Pacific Co. * Disco S.A., A.D.R. Total number of holdings: 59 A LOOK AT THE SIT MUTUAL FUNDS Sit Mutual Funds is managed by Sit Investment Associates, Inc. Sit Investment was founded by Eugene C. Sit in July 1981 and is dedicated to a single purpose, to be one of the premier investment management firms in the United States. Sit Investment currently manages more than $5.2 billion for some of America's largest corporations, foundations and endowments. Sit Mutual Funds is comprised of eleven 100% NO-LOAD funds. 100% NO-LOAD means that the funds have no sales charges on purchases, no deferred sales charges, no 12b-1 fees, no redemption fees and no exchange fees. Every dollar you invest goes to work for you. Some of the other features include: * Free telephone exchange * Dollar-cost averaging through automatic investment plan * Electronic transfer of funds for purchases and redemptions * Free check-writing privileges on bond funds * Retirement accounts including IRAs, Keoghs and 401(k) Plans SIT FAMILY OF FUNDS Principal Stability & Current Income STABILITY: INCOME: GROWTH & INCOME: GROWTH: Safety of principal Increased income Long-term capital Long-term capital and current income appreciation and appreciation income Growth Potential * MONEY MARKET * U.S. GOVERNMENT * BALANCED * MID CAP GROWTH SECURITIES * LARGE CAP GROWTH * INTERNATIONAL * TAX-FREE INCOME GROWTH * MINNESOTA * SMALL CAP TAX-FREE INCOME GROWTH * BOND * DEVELOPING MARKETS GROWTH [SIT LOGO] Directors: Eugene C. Sit, CFA Peter L. Mitchelson, CFA William E. Frenzel John E. Hulse Sidney L. Jones Donald W. Phillips Director Emeritus: Melvin C. Bahle Officers: Eugene C. Sit, CFA Chairman Peter L. Mitchelson, CFA Vice Chairman Mary K. Stern President Erik S. Anderson, CFA Vice President - Investments Ronald D. Sit, CFA Vice President - Investments Paul E. Rasmussen Vice President & Treasurer Michael P. Eckert Vice President Michael J. Radmer Secretary Carla J. Rose Assistant Secretary Debra A. Sit, CFA Assistant Treasurer QUARTERLY REPORT STOCK FUNDS March 31, 1997 INVESTMENT ADVISER Sit Investment Associates, Inc. 4600 Norwest Center Minneapolis, MN 55402 612-334-5888 (Metro Area) 800-332-5580 DISTRIBUTOR SIA Securities Corp. 4600 Norwest Center Minneapolis, MN 55402 612-334-5888 (Metro Area) 800-332-5580 CUSTODIAN The Northern Trust Company 50 South LaSalle Street Chicago, IL 60675 TRANSFER AGENT AND DISBURSING AGENT First Data Investor Services P.O. Box 9763 Providence, RI 02940-9763 AUDITORS KPMG Peat Marwick LLP 4200 Norwest Center Minneapolis, MN 55402 LEGAL COUNSEL Dorsey & Whitney LLP 220 South Sixth Street Minneapolis, MN 55402 INVESTMENT SUB-ADVISER (Developing Markets Growth Fund and International Growth Fund) Sit/Kim International Investment Associates, Inc. 4600 Norwest Center Minneapolis, MN 55402 612-334-5888 (Metro Area) 800-332-5580 MEMBER OF ==================== 100% NO-LOAD MUTUAL FUND COUNCIL ==================== -----END PRIVACY-ENHANCED MESSAGE-----